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Low vacancy rates - what does it mean for investors?

by Meighan Hetherington at www.propertypursuit.com.au

 


You may have read a lot about ?low vacancy rates' in the papers and magazines in the past few months.  So what does that really mean and is it good or bad for landlords?

In addition to other factors, most investors require their properties to perform well in at least two areas:

 

1. The property should appreciate in value.  

Between November 2003 and October 2006 property values across Brisbane have remained fairly steady in the majority of suburbs.  However prudent investors know there has been some outstanding growth in several suburbs during this time.  Although figures for the December quarter 2006 have not yet been released we have observed much stronger growth across most suburbs in the last quarter of 2006 as a result of increased demand putting upward pressure on property prices.

2.The rental return should increase and vacancy periods should be low.

When an investor considers rental return they are looking for a property that will continue to be in high demand in the long term with little or no periods where the property is vacant. 

 

In order to determine vacancy rates in different areas across Queensland the Real Estate Institute of Queensland (REIQ) conducts a monthly survey of all accredited agencies and provides reports on vacancy rates across each Local Government Area (LGA).

 

Generally speaking the vacancy rate is the percentage of all possible rental properties that are available for rent at a given point in time (i.e. vacant properties divided by total rent pool expressed as a percentage).  A continuing low vacancy rate will usually cause rents to increase.

 

So what are some of the factors that cause rents to increase?

The law of supply and demand rules the rental market in the same way that it rules all other economic markets.  Brisbane is currently witnessing a strong rental market where the demand for rental properties exceeds the supply of properties available for rent, therefore prices are increasing.  This is evident across all price brackets in Brisbane.

 

First home buyers and lower income earners, who are the potential tenant pool for lower priced properties, have suffered the most from interest rate rises.  For this reason many have been forced, or have chosen, to continue renting over the long term resulting in an increase in demand.  On the other hand there has been a decrease in the number of sales to investors since November 2003 (when the ?property boom' cooled off).  The net effect of this increased demand together with a relative decrease in supply has resulted in higher rent returns across the board for landlords.

 

So answer the answer to the question - Are low vacancy rates good or bad for landlords? - is evident.  A low the vacancy rate means there are fewer properties available for tenants to choose from which inevitably leads to an upward movement in weekly rents as tenants compete for limited opportunities. This is great news for landlords or those considering entering the investment property market!

 

Couple this with strong growth across many Brisbane suburbs and it all adds up to a great time to own or buy investment properties - just be sure to get a lot of independent guidance before you commit your valuable money to what should be a long term investment.